Mango Markets DAO buyback plan leads to accusations of ‘self-dealing’

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An April 7 plan to buy back tokens at a premium to market price has led to controversy within the governing body of decentralized finance protocol Mango Markets. 

Some community members claimed that the buyback was orchestrated to benefit the buyer of the FTX estate’s stash of MNGO tokens. These tokens were transferred from FTX to an anonymous account only a few days before the plan was proposed, implying that they may have been purchased as part of an over-the-counter deal.

Critics of the plan accused its originator, DonDuala, of being connected to the FTX buyer. DonDuala did not comment on this accusation within the Discord forum. 

Other members supported the plan, claiming it made sense for the organization to purchase MNGO tokens even if it benefited the mysterious FTX estate buyer. Supporters contended that the MNGO token is underpriced in the market and, therefore, should be repurchased as a way of distributing profits to investors. An amended version of the buyback plan was approved on April 24. 

Mango Markets is a Web3 app that allows crypto users to borrow and lend out various cryptocurrencies. It runs on the Solana network and is governed by MNGO tokenholders, who collectively form its governing body, the decentralized autonomous organization Mango DAO. 

The protocol was exploited for $116 million via a flash loan attack in October 2022, and its token price is down by more than 25% over its preexploit value, according to data from CoinMarketCap.

Don Duala makes a token buyback proposal

On April 7, Mango DAO member DonDuala posted a proposal to its forum on Discord. DonDuala suggested that the DAO should buy back 275 million MNGO from its current holders, thereby reducing the token’s circulating supply. In exchange, the DAO should offer holders 9.995 million of the Dai (DAI) stablecoin derivative CHAI, valued at approximately $10.7 million. This implied a buyback price of $0.032 per MNGO token. The price of MNGO on April 7 was $0.02324, according to CoinMarketCap, over 27% less than the implied buyback price.

Mango DAO buyback proposal. Source: Mango Markets, Discord

To facilitate this exchange, the DAO would issue options tokens that could be exercised by individual holders. To prevent the tokens from being distributed to exchanges and other automated systems, only accounts that participated in the proposal’s vote would receive the options.

Community discovers mysterious FTX “buyer”

On April 11, DAO member Donderper discovered that a mysterious account had received MNGO from the estate of bankrupt crypto exchange FTX, and that this account was now using these tokens to vote in favor of the buyback proposal. “Holy shit,” Donderper exclaimed. “Did FTX estate just enter the chat?” They posted a screenshot reportedly showing the account voting in favor of the proposal. At the time, it represented 6.67% of the total votes cast. 

Donderper notices FTX buyer vote. Source: Mango Markets, Discord

Donderper suggested that the actions of this account were “shady,” stating: “[A] week before this proposal starts being talked about FTX estate starts transferring out all 333 million of its tokens into an account that gets used in this vote.” They speculated that “someone cut a deal with FTX for to buy their mngo for [$0.01]” and then made a proposal to have the DAO buy it back for $0.038. They claimed that the account may be poised to make $2 million in net profit by selling half of its coins.

Donderper did not post any evidence of the price at which the alleged over-the-counter trade took place. Blockchain data shows only that a known FTX account transferred the tokens to a different account.

Some community members began to imply that DonDuala and another DAO member, Maximilian, may be affiliated with the FTX-related account. “Wow, this is super shady. @DonDuala / @Maximilian,” one member stated, asking, “Are you aware who controls this account?” Another member responded, “They 100% know,” calling the transfer “a backdoor deal.”

Comment from Mango DAO participants. Source: Mango markets, Discord

In a post later that day, DonDuala sidestepped the question of whether they were affiliated with the FTX buyer and instead responded to criticism of the proposal. DonDuala stated that the focus on the FTX buyer seemed to be a distraction from the core issue at stake in the proposal. “Understandably there’s a lot of dislike for FTX and the way the estate handled the liquidation proceedings,” they stated, “but today’s uproar in response to those tokens voting seem misplaced.”

DonDuala argued that the proposal should pass because it represented support for “market efficiency.” They stated, “No votes are a vote against market efficiency, yes votes defend the token while preserving optionality that the DAO continues on its best footing.”

Related: Mango Markets hires representative to handle US regulatory scrutiny

The proposal fails and is resurrected

On April 12, the initial proposal was voted down, with 52.3% of tokens being used to vote against it. DonDuala then resubmitted the proposal with amendments. In the new version, the DAO would buy back only 156 million MNGO, slightly more than half of what the original proposal had suggested. In addition, options would be distributed to all users who had deposited into Mango DAO’s Realm governance system, regardless of whether they participated in the vote for this particular proposal.

On April 20, Mango Markets co-founder Daffy Durairaj posted a lengthy argument against the new proposal’s passage. Durairaj claimed that DonDuala and Maximilian were being “completely mercenary” and were “willing to say and do whatever in order to improve their financial position.” Through private conversations, Durairaj had learned that “there is a large amount of money at stake and they don’t intend to negotiate.” He claimed that the two of them were engaged in “untrustworthy behavior and self-dealing” and that “these behaviors are by themselves reasons to vote against this proposal.”

Durairaj suggested that the DAO could support the token price through other means once the proposal was defeated but argued that this particular buyback proposal should not be accepted.

Daffy Durairaj’s comment on the buyback plan. Source: Mango Markets, Discord

The amended proposal passes

On April 21, Duala formally posted the new version of the proposal to the Realms voting system. On April 24, it passed, with over 67.9% of tokens being used to vote in favor of it.

Second buyback proposal passes. Source: Mango DAO on Realms

On April 30, Duala announced that 46.67% of the options had been exercised, resulting in the DAO buying back approximately 73 million MNGO for 2.3 million CHAI.

Results of buyback, as reported by DonDuala. Source: Mango Markets, Discord

The same day, DonDuala stated that they would make a new proposal to spend one-eighth of the DAO’s treasury in May to buy back additional MNGO at a price of 5% below the estimated book value.

In response to the buyback, some members took to social media to complain. “Mango DAO is COOKED,” X user Kevin stated, adding that “some shady actors made a buyback proposal that […] soft rugs passive token holders.” After this proposal failed, “they came back with cosmetic changes and voted it through.”

X user Frank Ronson pushed back against this claim, asking rhetorically, “What’s wrong with exiting at book value?” Ronson claimed that people “shouldn’t be held captive to a protocol that won’t buy back to match book value.” 

When a company’s market cap falls below its book value, investors sometimes buy up its shares, take control of the company and liquidate it. Investopedia refers to these investors as “corporate raiders.” According to the Cornell Law School’s Legal Information Institute, corporate raiding is legal in the United States, but poison pill and regulatory taxes often make the raids unprofitable.

Related: AAVE DAO debates reimbursement plan for AMPL depositors

On April 18, Avrham Eisenberg was found guilty of fraud for carrying out the Mango Markets exploit. His sentencing is scheduled for July 29. On April 26, court documents revealed that he was also charged with possession of child pornography.

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